Gem Diamonds Is Said to Hold Merger Talks With Canada’s Lucara

Gem Diamonds Ltd. (GEMD) is in talks with Canada’s Lucara Diamond Corp. (LUC) over a possible all-share merger, allowing the two to combine assets in southern Africa, according to three people with knowledge of the discussions.

The companies have been in negotiations since February and signed a confidentiality accord, said the people, who declined to be identified because the information is private. Talks between Gem and Lucara, valued at about $606 million and $412 million respectively, may not lead to a deal, the people said.

Diamond producers are seeking new reserves as dwindling output fails to match emerging-market demand. Global prices of rough, or unpolished, diamonds rose 26 percent in 2010, beating pre-recession highs. Prices may climb 25 percent this year, Gem Chief Executive Officer Clifford Elphick said March 18.

Gem has a confidentiality accord with Lucara, Elphick said March 18 by telephone. The agreement is one of eight Gem has with companies, he said.

“Like any mining company, you’re always reviewing all options,” Elphick said. “We’ve got internal growth options and we constantly review external growth.”

Sophia Shane, a spokeswoman for Lucara in Vancouver, said March 18 she wasn’t aware of any talks or confidentiality accord.

Gem has advanced 7 percent to 270 pence on the London Stock Exchange this year, while Lucara has risen 18 percent to C$1.12 in Canadian trading. The Bloomberg World Mining Index has declined 7 percent.

Gem, based in London, operates the Letseng mine in Lesotho and is developing a new mine in Botswana. Lucara has a diamond project adjacent to Letseng, called Mothae, as well as operations in Botswana and Namibia.

Gem also produces diamonds at the Ellendale project in Australia.

To contact the reporters on this story: Thomas Biesheuvel in London at [email protected]; Brett Foley in London at [email protected].

To contact the editor responsible for this story: Amanda Jordan at [email protected].